What Is an Alternative Loan?

Mid-prime small business loans are a type of alternative financing provided by institutional and commercial lenders to companies that have good credit, good cash flow, and solid revenue but still can't qualify for bank-rate or SBA financing. Mid-prime loan sizes usually range from $10,000 up to $500,000 and have terms ranging from 1-5 years. While a mid-prime alternative loan has rates higher than traditional bank financing, the rates and overall costs are much lower than that of a merchant cash advance or other types of fast, high-interest business financing. Mid-prime financing options are true loans and lines of credit (as opposed to a business-to-business transaction — like a cash advance) and have true APRs. Since this is a true loan, the interest associated with the loan is tax deductible. Another advantage to this type of financing is the fact that this loan can be funded with a traditional bank loan or line-of-credit in place. Since this is a 2nd position loan, all other types of traditional financing can remain in place uninterrupted. Mid-prime lenders are willing to take a second position, provided that the lender with the first position is a traditional lender and not another alternative lending source. The underwriting process for this type of business financing is much different than traditional financing, being that these loans rely less on personal and business credit and more on the company's cash flow for approval.